FedNow® 101: Establishing Your Connection

The world of financial services is rapidly changing with the emergence of real-time payments, which have been made possible in the U.S. thanks to the launch of instant payment rails, such as the Federal Reserve’s FedNow® Service.
As of the launch in July 2023, 35 financial institutions and 15 certified technology providers, including Pidgin, were initially connected to the system. This number has since expanded to approximately 700 banks and credit unions of varying sizes, alongside 30 service providers offering a range of services to partner banks, including payment processing, bill payment and more.  
With more than 10,000 financial institutions in the U.S., adoption looks different for the nation’s banks and credit unions. As thousands of institutions prepare to embrace faster payments, one of the first steps these organizations will need to consider is how to connect to the FedNow® Service. After all, establishing a connection is among the first steps to making real-time payments a reality with the new service and there are several ways an institution can connect.

What are the options for banks and credit unions to access FedNow?
Each financial institution needs to first determine how they’re going to participate and connect to the FedNow® Service.
As financial institutions assess their options for onboarding to the service, it’s worth getting a team involved to determine the best way to connect. The Federal Reserve recommends involving team members such as project managers, application owners, network or firewall staff, information security, End User Authorization Contact (EUAC), as well as an executive sponsor.
This team can work to understand the options for connecting and select the best path forward based on your institution’s instant payment plans. There are several ways a bank or credit union can connect and it’s worth taking the time to understand which path is best for your institution and customer base.

#1: Direct Connect
With a direct connection, your financial institution has the people, the staff and the users that can access and manage a 24/7/365 connection to FedNow® and the processing volume that comes with it. To manage the connection and exchange FedNow® ISO 20022 messages, financial institutions will need an application that can interface directly with the FedNow Service from your bank or credit union. Most likely, this means a bank or credit union will be using a payment application or portal that was built internally or bought and can exchange ISO 20022 messages all the way to their institution’s core system.

#2: Service Provider
Service providers will provide you access to FedNow® through their technology, serving as a co-pilot or helping hand, who can provide important functionalities like software interfaces on the front-end and back-end. These providers can help a bank or credit union manage reporting, payments activity and messaging, and users on the payment rail. Service providers can also help monitor master account balances for users on the system or provide the FedNow® Service connection management resources that are required. Service providers can do all or a portion of this based on what your financial institution needs and what its participation type is.

#3: Correspondent
A correspondent is a financial institution working as a service provider, but also providing additional services at the same time. A financial institution like a bankers’ bank or a corporate credit union would serve this role. As a service provider they offer their bank or credit union members the ability to connect with FedNow® and as a correspondent, they can also help with managing each individual institution’s master account.
As a certified service provider, Pidgin can support with all the above connection options and any participation type. Our team can even help financial institutions who want to pursue multiple connection options. No matter where your institution is on its faster payments journey, Pidgin is equipped to help you get connected to FedNow® and scale your real-time payment operations.